The price of gold fell by around 5% on Tuesday, following a sharp rally the day before that had taken it to a new record high of nearly $4,400 per troy ounce. In September, gold had already gained 11%, and another 12% in October, before suddenly dropping on Tuesday.
According to Claudio Wewel, strategist and economist at the private bank J. Safra Sarasin, “this decline is mainly due to profit-taking by investors, triggered by several factors.”
He explains: “First, political developments have recently been somewhat more encouraging. Earlier this week, President Trump suggested that a trade agreement between the United States and China could be within reach, although it would likely be limited in scope. In addition, The Wall Street Journal reported that the U.S. government is considering reducing some import tariffs, particularly on products not manufactured domestically.”
This news boosted confidence in the equity markets, reducing demand for safe-haven assets such as gold. At the same time, the U.S. dollar has strengthened. “Markets are also awaiting the latest U.S. inflation figures,” Wewel adds. “If those numbers come in higher than expected, the likelihood of further interest rate cuts could diminish — which would also weigh on gold prices.”
Positive outlook in the medium and long term
Despite the recent volatility, Wewel remains confident about the metal’s prospects. “In the medium and long term, the outlook for gold remains positive,” he affirms.
Geopolitical tensions continue to run high: the planned meeting between Trump and Putin in Budapest has been cancelled, and a genuine resolution to the U.S.-China trade conflict still appears distant.
Moreover, gold remains underrepresented in many investment portfolios. “We expect more investors to turn back to gold and increase their positions,” Wewel says. Central banks are also likely to continue buying gold to make their reserves less dependent on the U.S. dollar. Finally, growing interest from stablecoin issuers and a gradual shift by some investors away from cryptocurrencies could further support the gold price.
